By Rodric E. Cummins, CFA, Senior Vice President and Chief Investment Officer

During the second quarter of 2010, global equity markets experienced a sharp decline reflecting investor fears related to Europe’s sovereign debt crisis, moderating growth expectations in China and a sluggish U.S. economic recovery. In the U.S., markets rallied in early April but significantly declined in May and June. The S&P 500® Index posted a second quarter return of -11.43%, erasing first-quarter gains and bringing the year-to-date return to -6.65%. The broader U.S. market, as measured by the Russell 3000® Index, posted similar returns of -11.32% for the quarter and -6.05% for the year-to-date period.

From a sector perspective, performance was in negative territory for all sectors within the Russell 3000® Index during the quarter. Sectors perceived as more defensive outperformed economically sensitive sectors during the quarter. Though negative, the best performing sectors were utilities and consumer staples. The worst performing sectors were materials & processing and financial services.

Higher quality, low beta stocks tended to outperform during the quarter. In terms of equity market capitalization and style, everything (small, mid, large; growth, core, value) was down during the second quarter as all 26 equity indexes maintained by Russell Investments experienced negative returns. Small-cap companies outpaced their large-cap counterparts by about 1.5% based on Russell 2000® Index and Russell 1000® Index performance. Within large capitalization, value slightly outpaced growth as the Russell 1000® Value Index and Russell 1000® Growth Index posted similar returns of -11.15% and -11.75%, respectively. Over the year-to-date period, large value has outpaced large growth by about 2.5%.

International equity markets suffered through a difficult quarter as well. The MSCI-EAFE Index (Net), a measure of international-developed country returns, posted a dismal second-quarter return of -13.97%, bringing the year-to-date return to -13.23%. Though negative, emerging markets generally held up better than the developed markets as the MSCI Emerging Markets Index (Net) posted a quarterly return of -8.37%, bringing the year-to-date performance to -6.17%.

From a country perspective, most equity markets within the MSCI® All Country World ex-U.S. Index (representing both developed and emerging international markets) had negative performance for the quarter. Equity markets in Greece and Hungary were down the most, while the best performers were Indonesia and Peru. From a sector perspective, all sectors generated negative results although the more defensive sectors such as consumer staples and telecommunication services held up better than the overall market.

You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please call 1-888-98-GUIDE (1-888-984-8433) or download a prospectus. You should read the prospectus carefully before investing.

S&P 500® is a trademark of The McGraw-Hill Companies and has been licensed for use by GuideStone Funds. The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Equity Index Fund.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.

GuideStone Funds shares are distributed by BNY Mellon Distributors Inc., a registered broker-dealer and underwriter of the funds, 760 Moore Road, King of Prussia, PA 19406. GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.